Empirical stock–flow consistent models: evolution, current state and prospects

The paper explores the evolution of empirical stock–flow consistent (SFC) models, emphasising their structure, scope and number of financial and physical assets. Three types of models can be identified. The New Cambridge type is characterised by the aggregation of households, firms and banks into one aggregate private sector. The Godley–Lavoie type, termed after the impact of their collective work, treats the main institutional sectors separately. The third type, despite being largely heterogeneous, is marked by higher complexity. The paper argues that the structure of the models should vary according to the research question at hand, as higher complexity is ensued by augmented discrepancies between in-sample projections and actual data, especially in the financial domain. Despite this trade-off, several aspects of the models need to be improved, even at the expense of having more complicated structures. The paper provides some indications towards the direction that these improvements ought to take.